•Coins, other lower denominations remain legal tenders, Cardoso insists

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has chosen a cautious approach to inflation management by retaining the monetary policy rate (MPR) at 26.5 per cent.

Justifying the decision, the Governor of the CBN and Chairman of the MPC, Yemi Cardoso, pointed to renewed geopolitical tensions in the Middle East, persistent food inflation, and the need to sustain the gains in price stability.

The committee also retained the asymmetric corridor around the MPR at +500/-100 basis points, the cash reserve ratio (CRR) at 45 per cent for deposit money banks (DMBs), 16 per cent for merchant banks and 75 per cent for non-TSA public sector deposits.

Cardoso said the regulator’s approach followed a careful assessment of domestic and global risks, noting that while headline inflation moderated marginally in June, uncertainty arising from the renewed conflict in the Middle East warranted a cautious policy approach.

Headline inflation eased slightly to 15.91 per cent in June 2026 from 15.93 per cent in May, ending three consecutive months of increase.

However, food inflation accelerated to 17.52 per cent from 16.96 per cent, driven by supply constraints in food-producing areas and rising transportation costs.

Core inflation slowed to 15.92 per cent from 16.82 per cent, supported by exchange rate stability.

The committee said maintaining the current policy stance would allow it to monitor incoming economic data and assess the inflation outlook before taking further action.

The MPC acknowledged improved coordination between fiscal and monetary authorities, saying closer policy alignment had helped to cushion the domestic economy from external shocks, including the impact of rising global oil prices triggered by the Middle East crisis.

It also commended the Federal Government’s efforts to increase crude oil production and urged relevant agencies to deepen reforms in the solid minerals sector to diversify government revenue.

On the banking sector, the committee welcomed the successful recapitalisation exercise, noting that it strengthened the resilience of Nigerian banks. However, it urged the CBN to maintain close supervision to preserve financial system stability.

It noted that Nigeria’s economy remained resilient despite external headwinds. Real gross domestic product (GDP) expanded by 3.89 per cent in the first quarter of 2026, driven mainly by the non-oil sector, while the Composite Purchasing Managers’ Index (PMI) returned to expansion territory, rising to 50.1 points in June from 49.6 points in May.

External reserves also improved to $52.52 billion as of July 17, 2026, sufficient to cover about 11 months of imports, up from $50.47 billion at the end of May.

Nigeria’s external reserves have increased by over $26 billion since their 2016 low, reaching $52.52 billion, the highest level in about 17 years.

On the assumption that the naira is undervalued at about N1,385 to the dollar, Cardoso, who wittingly dismissed the claim, maintained that the apex bank would continue to maintain a transparent, liquid and market-driven foreign exchange market, insisting that the exchange rate would continue to be determined by market fundamentals.

He submitted that the bank’s focus was not on defending a particular exchange rate level but on ensuring an efficient market operating on a willing-buyer, willing-seller basis.

According to him, the long-term stability of the naira would depend on stronger crude oil earnings, increased foreign direct investment, higher domestic productivity and reduced import dependence.

The governor also explained that the newly introduced Nigeria Official Overnight Rate (NOFA) would replace judgment-based benchmarks with transaction-based pricing in the interbank market.

He said the benchmark aligns Nigeria with global best practice, similar to the transition from LIBOR to risk-free reference rates in advanced economies, and would become an important tool as the CBN advances towards an inflation-targeting monetary framework.

Cardoso dismissed concerns over the recent decline in banks’ credit portfolios following the withdrawal of regulatory forbearance introduced during the COVID-19 pandemic.

He said the forbearance had outlived its purpose, adding that banks were merely recalibrating their balance sheets as they strengthened capital buffers.

According to him, the adjustment represents a transition to a healthier credit environment rather than deterioration in banking sector conditions.

Responding to questions on recent licence revocations, Cardoso said the CBN had acted against affected institutions over prolonged supervisory and compliance failures.

He stressed that protecting depositors’ funds remained the apex bank’s foremost responsibility, assuring Nigerians that the banking system remains safe and sound.

Banks yet to meet the new capital thresholds, he said, remained under close regulatory oversight while the CBN worked with them on appropriate resolution options.

Cardoso also clarified that lower denomination coins remain legal tender, although demand for them has declined as Nigerians increasingly adopt digital payment channels.

He said the CBN’s financial inclusion strategy and the country’s transition towards a more digital payments ecosystem would naturally reduce reliance on physical cash over time.